On Friday, the ZAR retreated from what had promised to be a remarkable week. Reports emerged that the Trump administration intends to terminate all federal funding to South Africa, a development that appears to have prompted a surge in long USD positions. While this news is no longer new, its implications remain significant. The Trump administration steadfastly maintains its stance that South Africa is pursuing race-based policies, and it refuses to extend financial support to a nation whose domestic agenda conflicts with US foreign policy principles. Debates over the fairness of the United States’ evaluation of South Africa have increasingly taken a backseat to the more pressing reality: funding will be withdrawn, and the African Growth and Opportunity Act (AGOA) is likely to face cancellation.

As the market has, by and large digested this, the focus is now shifting to this week’s second attempt at a budget presentation. Of particular interest will be any changes to the tax code, given that the GNU has struggled to reach common ground on that front. The budget is expected to feature either a reduced VAT increase or none at all. It is unlikely to deliver major surprises, given that much of the expenditure detail was already disclosed in the leaked February draft. Nevertheless, stakeholders will closely scrutinise how the authorities intend to achieve fiscal balance. The outcomes of recent negotiations remain under wraps, but market observers are largely anticipating a modest VAT hike of 1%, complemented by targeted spending reductions. The precise areas of these cuts are yet to be clarified, adding an element of uncertainty. Regardless, the budget announcement is poised to bring a measure of stability to the bond market, potentially spurring foreign investors to establish new positions—particularly if the fiscal plan is perceived as judicious and well-considered.

ZAR Markets

The rand is on the back foot as the new week begins, with the USD-ZAR trading back towards 18.3500 while the EUR-ZAR tests Friday’s highs around 19.9000. While the ZAR’s trade today is consistent with broader moves in the emerging market FX space, it may begin to trade with a slightly more idiosyncratic flavour as the week progresses. This is due to the fact that Finance Minister Godongwana will be presenting the government’s budget on Wednesday, which is a structural driver of the ZAR given past fiscal decay and recent attempts to steady the ship. A prudent budget could help the USD-ZAR establish a new channel below its mid-January to end-February range, while a disappointing budget would likely drive the pair back into familiar territory north of 18.4000

Global FX Markets

The U.S. dollar weakened on Monday after a sharp decline last week, driven by signs of a softening U.S. labor market and escalating global trade war fears sparked by President Donald Trump’s erratic tariff policies. Trump imposed tariffs on major trading partners like Mexico, Canada, and China, only to delay some for a month, fueling uncertainty as economic slowdown signals grow. This has eroded investor confidence in the U.S. economy, previously a standout among peers, with net long dollar positions in currency futures dropping to $15.3 billion from a nine-year peak of $35.2 billion in January. Risk-averse investors have flocked to safe-haven currencies, pushing the Japanese yen up 0.5% to 147.27 per dollar (near a five-month high) and the Swiss franc to a three-month high of $0.87665. The euro rose 0.3% to $1.086725, buoyed by Germany’s fiscal reforms, while the dollar index lingered near a four-month low at 103.59. Trump’s Sunday Fox News comments, avoiding recession predictions and framing tariffs as a “big” transition to bring wealth back to America, heightened market unease. U.S. job growth data from Friday—151,000 jobs added in February, below the expected 160,000—revealed labor market cracks, with rising unemployment and falling participation. Analysts suggest this could prompt Federal Reserve rate cuts by May, with traders anticipating 75 basis points of cuts in 2025, fully priced in for June. Fed Chair Jerome Powell noted uncertainty over whether tariffs will drive sustained inflation